The decline of the bank branch

One of the most contentious subjects in UK retail banking is around branch closures. According to the Campaign for Community Banking Services, more than 8,000 UK bank branches have closed since 1990. This decline will continue (Lloyds has announced they are closing 200 more branches although curiously they are opening 50!) and potentially accelerate because of the dropping footfall in branches.

It’s not news to learn that customers are increasingly using online banking and mobile apps to manage their accounts and inevitably this leads to less branch visits. For many bank customers the branch is a redundant piece of history. However there is no ‘one size fits all’ model for bank customers; many older customers are challenged by technology, many business customers rely on cash handling, some customers prefer discussing financial matters face-to-face. These customers are marginalised by the branch closures as they have very limited alternatives. Some of the banks have deals with the Post Office but they could go further to help customers.

The last branch in a town or village should be able to generate revenue by charging other banks for servicing their customers. Banks should ensure there are convenient free to use cash machines available in all locations where branch banking is limited or non-existent. Bank staff, including managers, should be available to talk to customers face-to-face in areas where there are limited or no bank branches.

Of course there are costs involved in doing this but customer satisfaction comes with a cost and also it provides the opportunity to generate revenue via an improved relationship with customers.

Although contentious, dropping ‘free if in credit’ banking would remove a significant cross subsidy and barrier to innovation. It would allow banks to price their services sensibly to reflect different customer needs. Banks already tariff some accounts to favour electronic transactions over physical transactions and removing ‘free’ banking would allow this model to apply to all current accounts. Offering branch centric accounts would allow the customers who wanted branches to use them and pay accordingly, eliminating the cross subsidy from digital centric customers.

It’s time we saw a real debate on the alternatives to branch closures.